Consumer confidence tumbles in June

Tuesday

Jun 29, 2010 at 11:35 AMJun 29, 2010 at 11:36 AM

ANNE D'INNOCENZIOAP Retail Writer

NEW YORK — Americans, worried about jobs and the sluggish economic recovery, are having a relapse in confidence, causing a widely watched index to tumble in June and raising concerns about consumer spending in the critical months ahead.

The Conference Board, a private research group based in New York, said Tuesday that its Consumer Confidence Index dropped almost 10 points to 52.9, down from the revised 62.7 in May. Economists surveyed by Thomson Reuters had been expecting the reading to dip slightly to 62.8.

June's reading marked the biggest drop since February, when the index fell 10 points. The index had risen for three straight months since then.

Both components of the index — one that measures how consumers feel now about the economy, the other that assesses their outlook over the next six months — dropped. The Present Situation Index decreased to 25.5 in June from 29.8 in May. The Expectations Index declined to 71.2 from 84.6.

"Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement. "Until the pace of job growth picks up, consumer confidence is notly likely to pick up."

Stocks extended their losses after the release of the report. The Dow Jones industrial average is down 238 at 9,901.

The index had been recovering fitfully since hitting an all-time low of 25.3 in February 2009. Still, the reading was far below what's considered healthy. A reading above 90 indicates the economy is on solid footing; above 100 signals strong growth.

Economists watch the number closely because consumer spending including health care and other major items, accounts for about 70 percent of U.S. economic activity.

Economists already had believed confidence will remain weak for at least another year because of stubbornly high unemployment. But a batch of economic data — from disappointing job figures in May to dismal housing numbers — is increasing worries that the road to recovery could be rockier than anticipated. Amid such concerns, the Dow Jones Industrials has fallen 9.5 percent since late April.

"We're concerned about the strength of the economic recovery from here," said Richard Hastings, macro and consumer strategist with Global Hunter Securities.

A key housing index released Friday showed that home prices in April rose for the first time in seven months as government tax credits bolstered the housing market. But the rebound may be short-lived now that the incentives have expired. The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday posted an 0.8 percent gain. It had fallen in each of the past six months.

Overall, however, a recent batch of housing data released last week signaled a renewed housing slump that may threaten the broader economy. The Commerce Department reported on Wednesday that sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for a home as government tax credits expired. That came a day after a report showed that sales of previously owned homes fell unexpectedly in May.

The Commerce Department announced Monday that Americans spent a little more in May but not enough to accelerate the economic recovery. Consumer spending rose 0.2 percent last month after no change in April. But personal income was up 0.4 percent, indicating consumers are still wary and choosing to save money.

A key issue is jobs. The Labor Department is expected to report on Friday that employers eliminated 110,000 jobs in June, and the jobless rate is expected to tick up slightly to 9.8 percent, from 9.7 percent in May, according to economists surveyed by Thomson Reuters. That follows a bleak report in May, which showed employers added 431,000 jobs but the vast majority were temporary census positions.

Retailers had a surprisingly solid start to the year as consumers felt better as their stock portfolios rose, but since April, business has slowed. Hastings believes the sluggishness continued into June. He believes sweltering heat in this past month wilted sales of summer's trendy fashions as consumers stuck to buying the basics like shorts and tank tops to keep cool. He also cited a slowdown in revenue in big-ticket items.

The Conference Board survey is based on a random survey of consumers sent to 5,000 households from June 1 to June 22.

The survey showed that consumers' assessment of the labor market was less than favorable. Those claiming jobs are "hard to get" increased to 44.8 percent from 43.9 percent, while those saying jobs are "plentiful" decreased to 4.3 percent from 4.6 percent. Consumers polled were also much less optimistic about future job prospects.

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